AT&T Adds 148,000 U-verse Subscribers In Q1

4/22/2008 6:57 AM Eastern

By: Todd Spangler

AT&T continued to rack up subscribers for its IPTV service in the first quarter, hitting 379,000 U-verse TV users as of March 31, while at the same time disconnections in the telephone company’s legacy wireline business hit an all-time high.

U-verse TV had a net subscriber gain of 148,000 for the quarter, adding to the 231,000 subscribers AT&T reported at the end of 2007. AT&T said it expects a further ramp in the quarters ahead and reiterated that it expects to sign up more than 1 million subscribers by the end of 2008.

The U-verse numbers “remain too small to matter much,” Sanford Bernstein senior analyst Craig Moffett wrote in a research note Tuesday, but he added that the service is continuing to ramp up “perhaps enough to finally quiet the claims that it simply ‘doesn't work.’"

AT&T’s total video connections, which include AT&T U-verse TV and bundled satellite television service resold from DirecTV and Dish Network, increased by 264,000 in the quarter to reach 2.6 million. AT&T has stopped reselling DirecTV service in the former BellSouth region, in favor of Dish.

AT&T's broadband revenues were $1.4 billion, up 13.2% year over year. Total high-speed Internet connections, which include DSL and satellite broadband services, increased by 491,000, and AT&T ended the quarter with 14.6 million broadband connections, up 13.9% over the year-earlier period.

However, AT&T’s wireline disconnect rate for the quarter of 10.0% (versus 9.4% a year ago) was the highest in its history, according to Moffett.

“Despite continued improvements in enterprise, better-than-expected gains from U-verse, and a remarkable rebound in broadband, AT&T's continued access line deterioration is putting severe strains on wireline profitability,” he wrote.

Overall, AT&T’s revenues for the quarter were $30.7 billion (up 6.1% versus year-earlier quarter) and net income was $3.5 billion, up 21.5% from a year prior. The results were fueled primarily by AT&T’s strong wireless growth in the first quarter, with the $11.8 billion in revenue a 18.3% increase over the year-earlier quarter.

AT&T said its merger integration and operational cost initiatives continue on schedule. Last week, the telco said it would cut 1.5% of its workforce, or about 4,650 employees. AT&T expects operating expense savings from the merger with BellSouth and other initiatives to be more than $2 billion this year, versus approximately $3.9 billion in 2007.

Moffett said that the challenge for AT&T remains its “wireline/wireless balancing act.”

“As wireless grows, AT&T is hoping to leave its consumer wireline heritage far astern,” he wrote. “But it can only do so to a degree. For now, merger synergies are helping wireline profitability from being even worse, and wireless margin improvements are enough to keep the ship on course. But as synergies run off at the end of the year, the consumer segment is likely to once again become a weightier anchor.”